Codelco Asks CEO Keller to Resign After Clash Over Cuts

June 6 (Bloomberg) -- Codelco Chief Executive Officer
Thomas Keller was asked to resign after his unyielding approach
to cutting costs and preventing an output slide at the world’s
biggest copper miner riled some board members and union leaders.

“Codelco is in a critical stage, it needs to be
reestablished,” Oscar Landerretche, appointed as chairman of
the state-owned company last month by Chile’s new government,
told reporters after a late night board meeting in Santiago.
“The majority of the board voted for a change in leadership.”

Keller’s departure comes as President Michelle Bachelet
considers his plan to increase investments by more than $20
billion this decade. Without the spending, output would drop by
more than half, Keller said April 7. The former managing
director at Brookfield Asset Management Inc. had clashed with
union leaders including board member Raimundo Espinoza as he
sought to boost productivity. He faced strikes in April and
September last year as workers pushed for greater job security.

“I’m not willing to make investments where the Chilean
people are going to lose money,” Keller said in an interview
with El Mercurio published yesterday. “What we have now in
terms of workforce, health benefits and pay isn’t consistent
with profitability promises we made,” he told the newspaper,
referring to the company’s century-old Chuquicamata mine.

Board Voting

The board asked Keller to resign from June 13 and is
seeking to appoint a replacement within a couple of months,
Landerretche said today. Five board members voted to ask for the
resignation, three voted against and one abstained, the chairman
said.

Keller took over as CEO from former BHP Billiton Ltd.
executive Diego Hernandez in June 2012 amid a dispute between
Codelco and Anglo American Plc over the world’s fifth-largest
copper mine.

His predecessor recruited Keller to be chief financial
officer as Codelco stepped up investments, replaced mine
managers and cut workers in a bid to lift output and
productivity at aging mines in Chile.

Codelco hands over all profits to the government and
presents an investment proposal each year to reinvest them.
Keller publicly criticized the funding constraints last year as
he battled to obtain financing to carry out the projects.

‘Huge Tensions’

“There have been huge tensions between Codelco and the
Chilean government, given what appear to be mutually
incompatible aims and resources,” Nic Brown, head of
commodities research at Natixis SA in London, said today in e-mailed comments.

“Codelco has to invest huge amounts to maintain output
over the medium term,” Brown said. “For this, it will require
help from government. Government relies heavily on income from
the copper sector. Bachelet wants to raise taxes to fund social
programs.”

The government is committed to reinvesting in Codelco,
Finance Minister Alberto Arenas said in an April 14 statement.
President Bachelet and Arenas have until the end of this month
to approve or revise Codelco’s investment plan.

Codelco invested more than $4 billion in each of the past
two years under the previous administration of President
Sebastian Pinera, using a mixture of bonds and profit.

Socialist Party

President Bachelet, who took office in March, appointed
Landerretche as Codelco’s chairman last month. Landerretche is a
Universidad de Chile economics professor who belongs to
Bachelet’s Socialist Party.

Keller has a commercial engineering degree from Chile’s
Adolfo Ibanez University and a Master of Business Administration
from the University of Chicago. He was previously executive
president of the Collahuasi copper mine, which is owned by Anglo
and Glencore Plc.

Keller’s expansion plan, which comes as rivals scale back
in the face of slowing demand from China, would surpass all
investments since Codelco’s 1976 creation. The record spending
includes building an underground mine at Chuquicamata, the open
pit expropriated by President Salvador Allende from U.S. mining
companies Anaconda Corp. and Kennecott Corp. in 1971.

The expenditure requirements are partly the result of
successive Chilean governments since the 1990s siphoning off the
state-owned miner’s profits to help transform the nation into
the region’s wealthiest country.

Copper reached a four-week low in New York today, with
futures for delivery in July losing 1.9 percent to $3.0315 a
pound by 7:36 a.m. on the Comex in New York.

The metal has slumped about 10 percent in the two years
since Keller took Codelco’s helm.

“The departure is symptomatic of the difficulties in
reconciling Codelco’s investment plans versus government
policies, given the current state of the copper industry,” said
Brown at Natixis. “The top job at Codelco is something of a
poisoned chalice right now.”